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Bitcoin Cash

At about 12:20 UTC today, we’re going to witness the birth of a new cryptocurrency. From what I can tell, Bitcoin Cash will come into being thus:

Some Bitcoin miners will update their software (the new version is BitcoinABC, I believe);

Those bitcoin miners will then process a transaction block that is larger than 1mb in size;

The bitcoin miners using the old software will reject the block;

But the bitcoin miners with new software will accept the block, thereby creating a new chain of Bitcoin (Bitcoin Cash).

Both chains will hold the same history and public ledger up to the point where they split.

And apparently *waves hands about in air* anyone holding bitcoin at the point of divergence will somehow end up holding equal amounts of old bitcoin (BTC) and new bitcoin (BCC).

But you won’t get your bitcoin cash if…

Your wallet service and/or exchange won’t support it.

For example, I received a notification from my bitcoin wallet to say:

So I guess I’m out.

But not unaffected.

The disruption of alternatives

Most of us were worried that the underlying infrastructure of Bitcoin was going to be affected without a general acceptance of the Segwit upgrade. But fortunately, it looks like Bitcoin managed to get consensus this time round. Although a small group of committed Bitcoin Cash supporters are going ahead with the fork anyway.

But despite seeming insignificant, the hard fork is shaping up to have its own side effects as well:

The transaction speed of the existing Bitcoin infrastructure could be affected as miners shift their activities between whichever chain is more profitable at the time.

In advance of the split, some wallets and exchanges are planning to suspend and/or halt deposits and withdrawals (“if necessary”).

I’m interested to see how this plays out. Mainly because it seems that most investors are not really geared for this kind of technical detail. They’re used to smooth transactions over iPhone and Android apps, without any concern for private keys and offline wallets and such.

On a side-note

Firstly, I didn’t realise that gold was a bit iffy on the counterfeit front.

But also, there seems to be some spontaneous revision of economic theory here. We seem to have discovered a few new ‘requirements’ or ‘attributes’ for money:

“Authenticity verification”; and

“Scarce”.

We’re also missing a key attribute: that the medium is generally accepted by a population. And at this point, it’s probably a red no for Bitcoin Cash on that front.

But on the authenticity verification front… That attribute is only really a requirement of digital currencies. For fiat money, we don’t care where the cash note came from – as long as it’s not fake. But with a digital currency, because there is a public transaction record contained within every bitcoin, you don’t want to end up with a bitcoin that was stolen. Because anyone could check that.

And as for scarcity: I’m a bit of a skeptic. Mostly because scarcity is more of a nominal issue than a real one. Example:

A loaf of bread costs R10.

If the amount of money in circulation doubles, then the loaf of bread should work itself out to a cost of R20.

That is: money is essentially a form of measurement (it measures wealth, relative value, etc). So changing the amount in circulation is essentially just re-basing the measurement scale.

Of course, if you’re continually re-basing the measurement scale (like in a hyperinflation), then people will find a more stable alternative. But if you’re keeping the scale mostly in line with itself, then it’s probably quite workable.

Also, scarcity can sometimes make the currency-usefulness worse. In fact, one of the best examples of this is bitcoin itself. Because who wants to use their Bitcoin to buy a pizza today, if that pizza turns out to have cost millions of dollars down the line?